This week’s EIA crude oil inventory data continued the pattern of large inventory draws. The data was exceptional in that it also included distillate and gasoline draws, showing a lower than expected storage for fuel.
- Crude Oil Inventories Actual -4.727M Expected -3.214M
- EIA Weekly Distillates Stocks Actual -2.137M Expected 1.229M
- Gasoline Inventories Actual -4.445M Expected -0.655M
We’ve now had three weeks of strong inventory declines. If this continues for several more weeks, it will help shore up prices.
The monthly report from the International Energy Agency contained a revision in oil demand. The IEA stated global demand this year will expand by 1.5 million barrels per day (mb/d), which is higher than the agency’s estimate last month.
A faster than expected rise in demand, especially in Q2, should be a catalyst for more inventory declines. This rise in demand was also backed up by data from China which showed refinery demand in June was the second highest on record.
Oil rig counts have been on the increase for over a year. However recently the expansion has been slowing, which could be an indication of a turning point. In the past three weeks the oil rig count has increased by 7, compared to 25 in the three weeks prior.
If the drilling boom is curbed, then this could contribute to a tightening of supply, which could boost prices.
The more positive sentiment in the market can be seen in the actions of investors. Hedge funds and large money managers built up huge short positions in June. These shorts were beginning to be liquidised a few weeks ago. Most recent data shows investors are taking more bullish positions in the past two weeks, which indicates a little more optimism in the markets.